Intermediate Microeconomics – Chapter 8

1) Many firms, so that each individual firm is a price taker
2) Product produced by each firm is homogeneous, i.e. there are so many close substitutes
3) Barriers to entry/exit is zero.

Firm that has no influence over market price and thus takes the price as given.

Condition under which there are no special costs that make it difficult for a firm to enter (or exit) an industry.

Homogeneous products such as oil, gasoline, agricultural products, and raw materials where product quality is relatively similar.

Percentage change in one variable resulting from a 1% increase in another.

Principle that consumers will buy as much of a good as they can get at a single price, but for any higher price the quantity demanded drops to zero, while for any lower price the quantity demanded increases without limit. (horizontal line)

Principle that consumers will buy a fixed quantity of a good regardless of its price. (vertical line)

Association of businesses or people jointly owned and operated by members for mutual benefit.

Difference between total revenue and total cost

Change in revenue resulting from a one-unit increase in output.

increase output

maintain output

decrease output

Sum over all units produced by a firm of differences between the market price of a good and the marginal cost of production.

A firm is earning a normal return on its investment—i.e., it is doing as well as it could by investing its money elsewhere.

All firms in the industry are maximizing profit, no firm has an incentive to enter or exit, and the price is such that quantity supplied equals quantity demanded.

Amount that firms are willing to pay for an input less the minimum amount necessary to obtain it.

stay open and produce q such that P = MC in order to maximize profit or minimize loss

close down.